Download - Barrows Measures 03.18.09
Measuring & Managing Innovation
Ed Barrows, Lecturer Babson College
Babson Executive EducationMarch 18th, 2009
Discussion topics for today
• Survey results on measuring & managing innovation– External Findings– Our Own Findings
• Understand challenges with measuring & managing innovation• Defining Innovation • Consider the Innovation Process• Present a framework for managing & measuring innovation• Test the framework with our own organization• Seven barriers to effective innovation measurement
Most organizations claim innovation is critical to their future success…
Source: JustElite.net, www.eons.com blogs.smh.com.au
… sadly many fail to achieve their innovation goals
Perhaps the problem has something to do with the management system
Survey
In a 2001 survey by the Institute of Management Accountants1
60% of respondents indicating that innovation was a key feature in their company’s mission…
In a 2005 Monitor Group Innovation Survey of senior business executives2
89% recognize the importance of innovation….
In a 2006 Palladium/Monitor survey BSC Online members2
79% of respondents believe innovation is important or critical to achieving long-term strategy…
Good Not Good
… but more than 50% rated their performance measurement system for innovation as poor or less than adequate.
… but only 30% have confidence in the organization’s ability to achieve results.
… but 72% believe their organization has failed to meet its innovation objectives.
1Frigo, M. and Littman, J., Strategy, Business Execution and Performance Measures, Strategic Finance, 2002.2Jonash, R and Donlon, B., Connecting the Dots: Using the Balanced Scorecard to Execute an Innovation Strategy, Balanced Scorecard Report, March-April, 2007
How do we compare?
1. Overall our organization believes innovation is critical to our future success.
2. Our senior leadership supports our organization’s innovation efforts.
3. Our innovation is clearly linked to our competitive strategy.
4. Our performance measures effectively measure our innovation efforts.
5. Our performance management effectively monitors our innovation efforts.
Question Responses (N=18)
-
Strongly Disagree Disagree
Somewhat Disagree Neither
Strongly AgreeAgree
Somewhat Agree
- - - 11% 28% 61%
6% - - 11% 28% 22% 33%
- - - - 50% 28% 22%
22% 17% 6% 6% 28% 22% -
11% 28% 17% - 33% 11% -
Please indicate the response that best represents you answer to the following five questions:
What are your challenges in measuring & managing innovation?
??
There are many definitions of innovation from the simple to complex
Author Study
Knight, 1967 An innovation is the adoption of a change, which is new to an organization and to the relevant environment. Innovation process is a special case of the process of change in an organization. They differ only in the novelty of the outcome.
Thompson, 1967 The generation, acceptance and implementation of new ideas, processes, products, or services.
Meyers & Marquis,1969
A technical innovation is a complex activity which proceeds from the conceptualization of a new idea to a solution of the problem and then to the actual utilization of a new item of economic or social value.
Zaltman, Duncan,& Holbeck, 1973
Innovation refers to any idea, practice, or product that is perceived as new by the potential unit of adoption.
Utterback &Abernethy, 1975
Product innovations are new outputs or services that are introduced for the benefit of customers or clients.
Burgelman &Sayles, 1988
Innovation refers to a company's efforts in instituting new methods of production and/or bringing new products or services to market.
Drucker, 1998 Innovation is the effort to create purposeful change in an enterprise’s economic or social potential.
Burgelman, Christensen, &Wheelwright, 2004
Innovations are the outcome of the innovation process, which can be defined as the combined activities leading to new, marketable products and services and/or new production anddelivery systems.
Source: Yahgi, Bassil, The Moderating Effects of Performance Measurement Use on the Relationship between Organizational Performance Measurement Diversity and Product Innovation, Unpublished PhD Thesis, Cranfield University, 2006.
Regardless, innovations themselves are a result of an innovation process
A simple model of the innovation process
Inputs
Tangible Resources
Intangible Resources
Systems
Networks & Partnerships
Process
Creative Process
Project Execution
Development & Selection
Platform & Portfolio
Management
Outputs
Technology Leadership
New Product Introductions
Marketing Positioning
Business Improvement
Outcomes
Revenue / Profit Growth
Customer Mix Change
Long-Term Value
Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006
But the innovation process must be managed as part of an overall business strategy
The strategy map depicts and organization’s competitive strategy
Shareholder Value
New Revenue Sources
Increase Customer Value
Improve Cost Structure
Improve Asset Utilization
Price Quality Timeliness Relationship Service Brand
Innovation ProcessCustomer
Management Process
Operational Processes
Social & Environmental
Processes
Skills & Competencies Technology Culture Leadership
Financial
Customer
Internal Process
Learning & Growth
Customer Value Proposition
Adapted From: Kaplan, R. and Norton, D. The Strategy-Focused Organization, HBSP, 2002
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The key is to select the right innovation objectives and measures to support the strategy
The strategy map depicts and organization’s competitive strategy
Shareholder Value
New Revenue Sources
Increase Customer Value
Improve Cost Structure
Improve Asset Utilization
Price Quality Timeliness Relationship Service Brand
Innovation ProcessCustomer
Management Process
Operational Processes
Social & Environmental
Processes
Skills & Competencies Technology Culture Leadership
Financial
Customer
Internal Process
Learning & Growth
Customer Value Proposition
Adapted From: Kaplan, R. and Norton, D. The Strategy-Focused Organization, HBSP, 2002
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And innovation can take specific forms within the strategy map
Source: Jonash, R and Donlon, B., Connecting the Dots: Using the Balanced Scorecard to Execute an Innovation Strategy, Balanced Scorecard Report, March-April, 2007
Financial Objectives
Customer Objectives
Process Objectives
Learning & Growth Objectives
The strategy map innovation template
Let’s begin with Financial objectives and measures
Financial
Stock Price/ROE/ROI
Sales Growth
Residual Income
Revenue from Innovation
Percentage Sales from New Products
Financial
Innovation Budget
Product Mix
Margin by Product
Product Vitality
Market Share
Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006
Next Customer objectives and measures
Customer
New customers gained from innovation
Sales per customer
Customer satisfaction with innovation
Customer attrition / retention
Average Prices Paid by Customer
Customer
Customer Profitability
New segment penetration/share
Customer Conversion
Brand Perception
Share of total spend by customer
Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006
Internal Process objectives and measures
Internal Process
Project Performance
R&D Productivity
Patents Granted
Internal Process
Development Time/Cost
Mix of Innovation Projects
Number of New Partners/Productivity
Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006
Finally Learning & Growth objectives and measures
Examples of Innovation Measures
Learning & Growth
Individual Obj. Linked to Innovation
Free Time to Innovate
Leadership Support of Innovation
Innovation Competency Rate
Learning & Growth
Culture Climate for Innovation
Job Application Rate
% Compensation Linked to Innovation
Cross Functional Initiatives
Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006
Create an innovation strategy for your organization
Learning & Growth
Internal Process
Customer
Financial
Objectives / Measures
Infuse Creativity into Workforce
Build Innovation Process Skills
Establish Platform for Innovation
Partner with Experienced
Patent Holder
Build Innovation Pipeline
Price PerceptionProduct
Newness Perception
Sales from Products < 1
Year Old
Gross Sales
Gross Sales ($)
Sales from New Products ($)
Customer Newness RatingCustomer Price Rating
Number of Products per Pipeline Stage
Status of Partnership Agreement
Innovation Platform Readiness
Number of New Ideas
Innovation Process Training Complete
Some final thoughts…
1. If the strategy’s flawed, so too will be the innovation efforts2. Don’t measure the wrong things3. Objective measures are useful, but some things are inherently subjective4. Use the best information available5. IT is helpful, but not necessarily the answer6. Using the management system incorrectly will lead to perverse
consequences7. The wrong data is the wrong data
Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006
1. Overall our organization believes innovation is critical to our future success.
2. Our senior leadership supports our organization’s innovation efforts.
3. Our innovation efforts are clearly linked to our competitive strategy.
4. Our performance measures effectively measure our innovation efforts.
5. Our performance management effectively monitoring our innovation efforts.
Question ResponseStrongly Disagree Disagree
Somewhat Disagree Neither
Strongly AgreeAgree
Somewhat Agree
Please darken the response that best represents your answer to each of the following five questions: